Tesco races ahead at expense of Safeway

Tale of two retailers: Supermarket leader charges ahead while M&S pays price for London slowdown

Tesco said it was winning market share from bid target Safeway yesterday as the takeover contest takes its toll on Britain's fourth-largest supermarket group. Tesco has been deliberately targeting Safeway customers with marketing leaflets advertising pages of price comparisons. With Safeway the subject of five bids, including one from Tesco, it has struggled to fight back.

Sir Terry Leahy, Tesco's chief executive, said: "It is true that we are taking customers from Safeway but we are from others too. Some companies might be distracted at the minute. We are on top form at the moment."

Sir Terry repeated his view that under the present rules he expected competition policy would prevent four major players going down to three but said that if this were to change "consumers would be better off if Tesco led that charge".

He added that if a financial buyer such as the retail entrepreneur Philip Green bought Safeway it was important that any attempt to "break it up" was referred back to the competition authorities. Mr Green is the only bidder to have been cleared by the Office of Fair Trading with the other four all referred to the Competition Commission. It is scheduled to report by 12 August.

Sir Terry's comments were backed up by another strong set of figures with full-year profits up 13 per cent to £1.3bn. In the core UK business its performance eclipsed that of arch-rival J Sainsbury with like for like sales in the year to 22 February up 4.1 per cent on last year. This compares with the underlying fourth-quarter growth of just 1.3 per cent reported by Sainsbury's last week.

Sir Terry commented: "What we have seen in the last year is a return to more normal levels of growth across the industry. This is a time where there will be winners and losers and with an uncertain environment this will become more apparent."

Merrill Lynch, Tesco's broker, said it was clear that "Tesco is benefiting from two of its rivals (Sainsbury's and Safeway) being in distress".

Britain's leading supermarket group said it would create a further 20,000 jobs in the current year as it expands both at home and abroad. It plans to open six new Tesco Extra hypermarkets in the UK this year taking the total to 66. Another 17 supermarkets are planned as well as three more Tesco Metro branches. The company confirmed that it would convert 450 of the recently acquired T&S convenience stores to the Express format with the remainder continuing to trade under the One Stop name.

Nearly half of Tesco's selling space is now overseas in markets such as Poland, Hungary, Thailand and Taiwan. Overseas operations accounted for £5.2bn of sales and £212m of underlying profits. The group is still looking at opportunities in Turkey, Japan and China.

Half of Tesco's new UK space this year has been in non-food. Tesco now claims a 16 per cent share of chart music sales compared with just 4 per cent five years ago. Clothing sales are up 20 per cent in thepast six months. Sir Terry said the group was selling adult T-shirts at £3 and jeans at £6.

Tesco's personal finance business, run in conjunction with Royal Bank of Scotland, made a £96m profit. Tesco says it now has 2 per cent of the UK's motor insurance market and is accounting for 5 per cent of all new business in that area.

Pension costs will increase by £24m with the company contributing 11 per cent of staff salaries into the scheme.